Coronavirus Job Retention Scheme – Updated 17 April 2020

The purpose of this note is to summarise the main provisions of the Coronavirus Job Retention Scheme, as they are currently understood, and to identify some of the key issues employers may face. It has been updated to take into account the new guidance and documents published by the government on Friday 17th April at around 5pm.

It should be read in conjunction with the other documents and guidance available from the government. These documents can be summarised as follows:

•  Guidance for employers
• Guidance for employees
• Formal direction from the Treasury to HMRC, under the Coronavirus Act 2020
• Guide on how to work out 80% of an employee’s pay
• Step by step guide on how to claim
• Claim page (with link to Government Gateway) 

You should be aware that there are contradictions between some of these documents, most notably between the formal direction and the guidance notes. We have endeavoured to deal with any such inconsistencies below, where possible.

Introduction

The scheme is designed to help employers whose operations have been affected by coronavirus to retain their employees and protect the UK economy.

The scheme will run from 1 March 2020 until 30 June 2020 and the online portal will be available for claims from 20 April 2020.

In simple terms, employers can claim for 80% of furloughed employees’ usual monthly wage costs, up to £2,500 a month, plus the associated Employer NI contributions and minimum auto-enrolment employer pension contributions on that wage.

Which employers are eligible?

All employers that had a PAYE payroll scheme registered on HMRC’s real time information system (RTI) on 19 March 2020 and have a UK bank account are eligible.

Which workers/employees are eligible?

A worker or employee needs to be furloughed, which means they cannot undertake any work, save for voluntary work or training. The scheme will not apply to those on short-time working or who are working on reduced pay.

The minimum period an employee can be furloughed for is 3 consecutive weeks’, but apart from this restriction there is nothing to stop rotating staff on and off furlough during the scheme period.

Claims can be made for all furloughed employees and workers (including those on zero-hour contracts) provided they were on your PAYE payroll and were notified to HMRC on an RTI submission on or before 19 March.

This is an improvement on the original qualifying date of 28 February, but its impact for monthly paid staff may well be limited. There is a requirement to not only be on payroll on or before 19 March, but also to have been included on an RTI submission. As RTI submissions are often made at the end of the month, those employees who are paid monthly and who started work after 28 February may still not be eligible.

Apprentices, subject to some additional requirements, and staff employed by individuals, such as nannies or carers, can be furloughed. It can also include foreign nationals and being furloughed does not count as ‘access to public funds’, which is restricted under many visas.

Employees that were employed and on payroll on 28 February 2020 and had been notified to HMRC on an RTI submission on or before that date, who were made redundant or stopped working for you after that date, can also qualify for the scheme, but only if they are rehired. The Treasury direction suggests that an employee is only eligible if the termination or the cessation of work is by reason of circumstances arising as a result of coronavirus.

There is no obligation on an employer to rehire eligible employees, but they may wish to do so voluntarily, or it may need to be considered as part of any appeal process to avoid an unfair dismissal claim.

Employees who are unable to work because they have caring responsibilities resulting from coronavirus, such as school closures, can be furloughed too.

If your employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.

Sickness, holiday and shielding

The latest government guidance has confirmed that employees can take holiday while on furlough and that this will not constitute a break in the minimum 3 week furlough period. Any such holiday, including bank holidays (if they form part of an employee’s normal holiday entitlement), that fall during a furlough period will need to paid at the normal rate of pay (rather than any lesser furlough rate).

Whether or not it is possible to force an employee to take holiday during a period of furlough, or for them to return to take holiday and then be re-furloughed, is less clear. If you wish to compel your employee to take holiday then we would recommend you seek specific advice.

The guidance and the direction are unclear on whether it is possible for an employee to be placed on furlough whilst they are on sick leave or are self-isolating. It appears that an employee who is on sick leave can only be furloughed after they return, but if they fall sick during a period of furlough this will not interrupt the furlough and money can still be claimed for that period under the government grant.

Employees who are shielding (or need to stay home with someone who is shielding) and who are unable to work from home can be placed on furlough. 

Are company directors eligible?

As office holders, salaried company directors are eligible to be furloughed and receive support. This can also apply to salaried individuals who are directors of their own personal service company.

There are, however, some limits to this due to the statutory duties that directors owe to their company. Accordingly, the company has to conclude that furloughing the director is still in compliance with their statutory duties and this needs to be formally adopted as a decision of the company.

If a furloughed director needs to carry out duties in accordance with their statutory obligations, they must not do any more than would reasonably be judged necessary for that purpose. We would recommend you get specific advice if you are seeking to furlough a company director.

Is a written agreement required?

The Treasury direction to HMRC states that there is a requirement that the “employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment.”

However, the latest guidance published by the government (subsequent to that direction) states: “To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. If this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming the CJRS. There needs to be a written record, but the employee does not have to provide a written response.”

There is a clear contradiction between the direction and the guidance. However, it appears that the intention is that provided the employer has confirmed the furlough in writing and the employees have consented to being furloughed (which could be by oral or implied agreement), there is no need for their consent or agreement to be in writing. If in any doubt as to whether your current arrangements are compliant, please do get in touch.

Consent and legal risks

Employers need to be careful when designating employees as furloughed as normal employment law protections will still apply. You should be obtaining consent, being careful to not cause a breakdown in the relationship of trust and confidence and avoiding allegations of discrimination. Collective consultation obligations may also apply if more than 20 employees could face dismissal if they refuse to accept being furloughed.

Furloughed staff can still be made redundant either during furlough or afterwards, but they will retain their continuity of service and normal employment rights.

Process

The notification to employees that they are being furloughed must be in writing and a record kept for 5 years.

Employers will need to pay the employee directly a minimum of the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary but is not obliged to do so. Any wages paid to the furloughed employee will be subject to the usual income tax and NI deductions.

It is not necessary for the payments to be made in advance of receipt of the government grant, but employers will need to be clear as to the timing of payments and should bear in mind the need for consent to the furlough as set out above.

As stated above, the employer can claim a grant to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer NI contributions and minimum automatic enrolment employer pension contributions on that subsidised wage.

Calculating payments

The government has now published more detailed guidance on the calculation of payments and an online calculator is due to be made available on 20 April. However, in summary:

For “fixed rate” employees, the employee’s actual salary before tax in the last salary period ending on or before 19 March 2020, should be used to calculate the 80%. This is likely to cover full-time and part-time employees who only have a contractual entitlement to a basic annual salary and whose pay does not vary with hours of work.

For all other employees and workers, including those whose contractual pay varies, the calculation shall be the greater of:

• the average monthly amount paid to the employee for the period comprising the tax year 2019-20 before the period of furlough began, and
•  the actual amount paid to the employee in the corresponding calendar period in the previous year.

The current guidance suggests that any regular payments employers have been obliged to pay can be included in the calculation. This may include wages, past overtime, fees and compulsory commission payments. However, discretionary bonus and commission payments and non-cash payments are excluded.

It is also important to note that benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should not be included in the reference salary. This may mean that employers who have not taken this into account and guaranteed employees that they will receive 80% of their full pre-salary sacrifice pay may not recover all of those costs from the government grant.

Making a claim

You can only make one claim per “claim period”, which appears to be each regular payroll run. You must ensure that you claim for all employees in each period at one time, you cannot make changes or additions to your claim.

The online system does not allow for you to “save and return” so any claim must be submitted in one session and you will be logged out if you are inactive for 30 minutes.

HMRC will check the claim and if you are eligible make a BACS payment to your bank account within six working days.

You must then use that money to ensure furloughed staff receive no less than 80% of their reference pay (up to the monthly cap of £2500).

No claim should be made that is abusive or contrary to the exceptional purpose of the scheme and HMRC retains the right to retrospectively audit all aspects of a claim.

Assistance

For practical advice on the coronavirus job retention scheme and how to furlough your employees or any of the other employment law implications of the coronavirus pandemic, please don’t hesitate to me.

This information is provided for guidance only and does not constitute legal advice. The law and practice changes from time to time and professional legal advice should be obtained before taking or refraining from taking any action.